Current Balance vs. Payoff Amount

Payoff amount and current balance are related but not equivalent terms.

Current balance means the amount you owe according to your statement. The next day, you will owe more. In other words, if you are trying to pay off a credit card and the statement says your balance is $514, you may not be able to bring your balance to zero and satisfy the debt by writing a check for $514. Instead, you would need to contact your lender to find out your payoff amount.

Payoff amount is how much you would have to pay to satisfy the debt. It is not the same amount as the current balance on your statement—at least not for long.

The difference between the current balance according to your statement and the payoff amount is crucial when you are ready to pay off your debt.

You can think of the payoff amount as a more current balance number. But if you are trying to eliminate a debt, you need to pay it all off. And if you just pay the current balance according to your statement, you may be left with a few cents or dollars left in the account. That small amount will accrue interest and grow. If you never pay it off, it could become more than an irritation, it could become a significant obstacle to eliminating your debt.

So before you pay off a debt, call the lender to find out exactly how much you owe, and how much it will take to pay the debt off, in full.

And most importantly, document what you do, and get proof in writing. Ask for the payoff amount in writing. The lender may be willing to send you a payoff letter. If not, make a note of who you spoke to, when, and what they said. When you make the payment, keep a copy of your payment. Lastly, follow up and make sure the balance is fully paid. The lender can, and should, be willing to send you a letter indicating the balance is now zero.